According to the fourth USD 489 mailer promoting the school board’s $154 million tax increase, the economic impact to the Hays community generated by the proposed building projects is estimated at $189 million. From a common sense perspective, it’s hard to imagine how increasing taxes by $154 million can generate $189 million of positive economic impact, particularly since no new jobs are going to be created and local property owners will have $154 million less to spend in the local economy.
In fact, research demonstrates that the economic impact will actually be negative on the Hays community — to the tune of $462 million.
In Hoisington Management Quarterly Review Outlook, 3Q 2016 and 2Q 2009 written by Dr. Lacy Hunt and Van Hoisington which appeared in John Mauldin’s “Outside the Box” newsletter dated October 26, 2016, and July 13, 2009, respectively, Hunt and Hoisington wrote the following about government spending and tax multipliers:
“Textbooks have historically hypothesized that government expenditures lift economic growth by some multiple of every dollar spent through a positive government expenditure multiplier. … Impressive scholarly research has demonstrated that the government spending multiplier is in fact negative, meaning that a dollar of deficit spending slows economic output. The fundamental rationale is that the government has to withdraw funds, via taxes or borrowing, from the private sector, to spend their dollars. When that happens, the more productive private sector of the economy has fewer funds to use to make productive investments. Thus the economy slows along with productivity when government spending increases.
“Multipliers take into consideration the second, third, fourth, etc. round effects from an initial change. Thus, multipliers capture the unintended consequences of policy actions. Although the initial spending objectives may be well intended, the ultimate outcome becomes convoluted. Over the past several years, multipliers have been intensively examined by leading economic scholars.”
Dr. Robert Barro of Harvard University and Dr. Robert Perotti of Universitá Bocconi and the Center for Capital Economic Policy Research calculate that “each $1 increase in government spending reduces private spending by about $1, with no net benefit to GDP. All that is left is a higher level of government debt creating slower economic growth.”
“The most extensive research on tax multipliers is found in a paper written at the University of California Berkeley entitled The Macroeconomic Effects of Tax Changes: Estimates Based on a new Measure of Fiscal Shocks, by Dr. Christina D. Romer, former chair of the president’s Council of Economic Advisors, and Dr. David H. Romer (March 2007). This study found that the tax multiplier is 3, meaning that each dollar rise in taxes will reduce private spending by $3.”
When the voters go to the polls on Tuesday, Nov. 7, they should be able to make their decision on the school bond based on accurate information. USD 489 has failed the voter.
Henry Schwaller IV, Hays